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Can You Fight Poverty by Paying Kids to Go to School?

The issue has even broken through the thick partisan firewall that typically defines the debate. Former GOP vice presidential candidate Paul Ryan, for one, has made it a personal mission to put poverty back on his party’s agenda by offering a plan that would encourage innovation at the state level and expand the EITC to single adults, an idea borrowed from think tanks and subject of a new Bloomberg-funded trial in New York. “We can restore America as the party of equal opportunity to show how these ideas can prevail,” the Wisconsin congressman told an audience of Republicans in Iowa last fall.

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A year-long reported series from Politico Magazine, featuring innovative ideas—and how they spread—from cities across the United States at a time of unprecedented urban reinvention.

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But ideas—or the lack of good ones, actually—are at the heart of the problem. There simply aren’t programs that offer the kind of instant effectiveness that policymakers in the United States demand, and fewer still with widespread political appeal.

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That explains why many of the most interesting recent war-on-poverty ideas are, for the most part, foreign imports. The cash-for-good-behavior concept was basically smuggled into the country on Mike Bloomberg’s private jet.

In mid-2007, at the advice of his top aides, Bloomberg flew down to Mexico to interview officials who were using cash transfers to coax impoverished mothers into vaccinating their young children in the much-emulated Oportunidades program. Bloomberg, who had antagonized liberals by refusing to hike taxes on Wall St. to deal with city cash shortfalls, was in the market for a big, bold, progressive idea: he’d already exhibited a propensity for transplanting policies (most notably bike lanes) from other countries, so the notion of tackling urban America’s most difficult problem held deep appeal.

Bloomberg’s deputy mayor Linda Gibbs, an expert on homelessness who had the billionaire’s ear, came back from the Mexico trip energized but sober. In Mexico, the program worked best when it was rewarding simple behaviors like showing up for a doctor’s appointment; getting New Yorkers, jaded by years in the welfare system, to change their behavior for a few extra bucks would prove a far tougher task. “I think there was a lot of intellectual curiosity about it, and we really wanted to do something that would have an impact on poverty, not something that was around the edges,” Gibbs told me.

The mayor, she said, was eager to get it going, despite the doubts, and authorized her to move forward a few weeks after they got back to New York. “Why not? Let’s try it out,” he told her. “The worst thing that can happen is it won’t work and we’ll have to try something else.”

At the center of the effort was the principle of “conditional cash transfers”—CCTs in development–speak—entitlement payments that were pegged to measurable changes in a recipient’s behavior patterns. The concept itself wasn’t new; EITC and workfare are founded on a cash-for-compliance regimen. But CCTs represent a much fuller flowering of the concept—governments could use them to incentivize all kinds of desired behaviors and outcomes, and make adjustments based on which strategies are the most effective.

Brazil’s Bolsa Escola incentivizes vaccinations and school attendance, Indonesia’s is the first stage of an as-yet undeveloped national anti-poverty initiative, Peru’s Juntos initiative targets mothers in extreme poverty. Oportunidades was the most ambitious of them all, replacing an inefficient central welfare system in Mexico, earning solid reviews from the World Bank and other development groups, and turning its creators, Santiago Levy and Julio Frenk, into international celebrities.

The goal, ultimately, was to instill middle-class patterns that would pull people out of poverty—while changing perceptions about payouts to the poor. “Guess what? Just giving cash to poor people has all kinds of positive benefits—such as them buying food!” says Charles Kenny, a senior fellow at the Washington-based Center for Global Development who has studied the impact of anti-poverty programs. “The rewards are a good idea. There’s nothing wrong with it. ... But to some extent, the real reason [for it] is to sell the idea of a safety net to rich people.”

In New York, Bloomberg green-lit a big three-year trial—offering as many as 2,400 poor families in the five boroughs educational, vocational and health care incentives that, when added together, offered the possibility of adding thousands of dollars to their annual income. To avoid a nasty political battle, Bloomberg solicited contributions exclusively from private and non-profit donors and friendly foundations, like Rockefeller and Robin Hood, eventually bankrolling as much as $20 million of the $50 million program himself, through the Bloomberg Family Foundation.

“We quickly realized this was something we couldn’t spend taxpayer money on. It was too experimental, and we would get our asses handed to us,” said a former Bloomberg aide.

If the program succeeded, a chipper Bloomberg told reporters during the June 2007 announcement, he would eventually seek city funding.

It never got that far. The program was no bust, but it suffered from several design flaws that became increasingly obvious as time went on. The first, and worst, were the incentives themselves. “There were just too many of them,” Gibbs concedes—22 in all.

A bigger problem was that the rewards were poorly targeted—in part because the designers wanted to experiment with a wide range of rewards. Bloomberg and Co. wanted to prove that the payments could actually alter long-term behavior, so they created a set of incentives pegged to big achievements, far-off benchmarks that elicit dramatic, demonstrable results. The academic rewards—the centerpiece of the whole plan—were especially flawed because they offered large, intermittent payouts for big achievements instead of more frequent rewards for smaller achievements that would give families a greater sense of forward progress.

Students could earn $300 to $350—big money for a family earning $25,000 a year—for passing their standardized assessment tests in the fourth and eighth grades, or a whopping $600 for annual subject-based high school tests known as Regents Exams. But as incentives go, they were too big, too delayed. In real life, parents paid far more attention to less lofty and distant benchmarks—like quarterly report cards—and weren’t especially motivated to force their kids to cram for tests which required a lot of effort with no guarantee of return. Other mistakes seem obvious in retrospect; offering a kid $50 for obtaining a library card doesn’t mean they’ll use it take out a book—especially if they are already reading below grade level.

Many of the residents of the Cleaborn Pointe projects, above, have poured in from other housing projects around Memphis that were demolished under a federal effort to replace crumbling low-income housing structures. | Mark Peterson/Redux

By 2010, MDRC, which exhaustively studied the program, reported results that were far too modest to justify asking the New York City Council to pay for an expensive program with heavy administrative overhead. Work participation rates for adults were generally no higher than for a control group of New Yorkers outside the program, the participants were no more likely to seek health care than other poor people, and, most disappointing of all, education incentives “had few effects” on the academic performance of school-age children who received the cash, according to MDRC’s 2013 report.